More than half of the states that have a personal income tax require employers to withhold tax from a nonresident employee's wages beginning with the first day the nonresident employee travels to the state for business purposes, but other states allow you to work there for 30 days or more first, according to the Mobile Workforce Coalition, a group of 280 organizations to advocate for simplifying nonresident state income tax rules. Split time can complicate taxes further because states vary in how many days a nonresident employee can work in a nonresident state before withholding is required. Wait: IRS warns taxpayers to hold off filing returns in 20 states as it checks if it can tax special refunds What if I split my time between states? No worries: These 9 states don’t have an income tax. So, if employees choose to work from a different location out of convenience, not requirement, those states will tax the employee’s income no matter if they’re working and living in a different state and already paying income tax there. In Connecticut, Delaware, Nebraska, New York and Pennsylvania, employers withhold income tax based on where the employer is located unless the company requires the worker to telecommute. Which states do people have to watch out for? In a handful of states that offer neither reciprocity nor credit, you may end up owing tax in both the state where you’re living and working and also in the state where your employer is. Credits don't apply to local and county taxes.Typically, it’s spending more than half a year in the state with the intent of making it your permanent home, such as getting your mail, driver’s license or voting or buying a home there. Receiving the credit also assumes residency, which can also be tricky, warns Nathan Hagerman, partner at Taft law firm.If the tax rate in the state where you will receive a credit is lower than your home state, you may still owe some residual tax.HSA: How they work and how to use them to cut taxes, build wealth. To get the credit, you’d have to file an income tax in both states. That means filing a resident state income tax form for your home state with all your income sources and a nonresident tax return with only your employment income.įSA vs. If there isn’t reciprocity between the two states, some states allow you to get a credit for taxes paid in the state where you’re not living and working. Employers would only withhold taxes where the employee resides, and the employee files that state’s tax return. Some states offer reciprocity, which allows taxpayers to only pay in the state where they’re living and working. It’s more complicated when they are in two different states. That’s simple when employees and employers are in one place. Generally, state and local income taxes should be withheld where the employee performed the services. How do state and local taxes usually work? regardless of whether they’re there or not,” said Jared Walczak, vice president of State Projects at The Tax Foundation think tank. “Several states still have rules that tax the income of employees in offices. And in some instances, you could be required to pay taxes to two states. Here's how it works.īut that’s changed now. Those waivers have mostly expired, which means if you’re still working remotely in a different state, you should check state tax laws.ĭepending on where you’re working, where your office is based, and why you’re still working remotely, your taxes could get messy. Home office deductions: Few can file home office tax deductions. States in turn offered temporary waivers, so most employees didn’t have to pay income tax both in the actual state where they were working and the state where the work was being done pre-pandemic.Īre you ready to file your taxes? Here's everything you need to know However, depending on where you’re working and why you’re out of the office, this could cost you double - as in double taxation and double filings – come April 18.ĭuring the pandemic, many Americans moved out of cramped, crowded cities to areas with more space or to be closer to their “bubble” of family and friends, even if it was to a different state. Many people are reluctant to return to the office, enjoying the freedom and ease of working remotely.
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